US Fidelis billed itself as the largest seller of vehicle service contracts. It became the most prominent and profitable due to its aggressive marketing and sales tactics. Their assertive approach also contributed to the astonishingly large number of complaints about them with the Better Business Bureau, as well as lawsuits and investigations by more than 40 states. Earlier this week, US Fidelis announced that it was suspending sales. They will probably never resume. Regardless of the reasons for this turn of events, US Fidelis’s sudden demise raises the question: What now for the people who bought contracts through them? One of consumers’ biggest fears about enrolling in a vehicle protection plan is that the company will disappear, and that they will be left holding a worthless piece of paper. That concern surfaced regarding the warranties provided by General Motors, Chrysler, and Ford, due to their well-publicized financial troubles.
The good news for US Fidelis’s customers is that their worst fears are not realized. Their contracts are valid whether US Fidelis is here or gone. That’s because, while customer enrolled through US Fidelis, they did not enroll with US Fidelis. The contracts are between each customer and a contract provider, not with US Fidelis. US Fidelis was a broker. US Fidelis represented multiple plan administrators that do not distribute directly to the public, but rather devote their time strictly to paying claims. Such companies rely on brokers to explain plans to customers, to process enrollments, and to do some customer service, unrelated to the processing of claims. US Fidelis played the role of matching customers with contract providers. Their disappearance may startle its customers, but these customers may be assured that their plans are still active, still valid, and will still work.
The fate of US Fidelis shows the value of using a broker. If US Fidelis was a company that not only sold, but also administered, its own plans, then customers who enrolled with them would indeed be at risk of losing both their coverage and their money. But, because US Fidelis was a broker, its customers are protected. Companies that both sell and administer their own plans are larger operations, with more divisions and more complex organizations. These days, all of that means they are more subject to the economic tumult affecting almost every industry, especially those related to the automotive industry. Companies who only administer contracts and pay claims, and companies who only offer plans, tend to be leaner, more compact, and are less likely to be over-extended. That means they are less subject to negative market forces. US Fidelis’s weakness was none of those, but rather its apparent disregard for its own reputation, which lead to a declining customer base and a rise in cancellations.
Yet, because US Fidelis was a broker, its customers are totally unaffected by its departure from the scene. If only for that reason, US Fidelis ended up serving its customers very well.
